interest rate cut kept US labor market strong By Reuters

(Reuters) – Federal Reserve Vice Chairman Philip Jefferson said on Tuesday that the U.S. central bank’s half-percentage-point cut in interest rates last month was aimed at keeping the labor market strong even as inflation continued to fall.

“The FOMC has gained more confidence that inflation is moving sustainably toward our 2 percent objective,” Jefferson said, referring to the rate-setting Federal Open Market Committee, of which he is a member. “To maintain the strength of the labor market, my FOMC colleagues and I recalibrated our policy stance last month.”

The Fed’s 50 basis point rate cut at its Sept. 17-18 meeting was more than many analysts had expected. In remarks prepared to be delivered at Davidson College in Davidson, North Carolina, Jefferson explained the reasoning behind the decision in much the same terms as Fed Chairman Jerome Powell did, as an attempt to keep the economy healthy while fight against inflation.

“Economic activity continues to grow at a solid pace. Inflation has eased substantially. The labor market has cooled from its previously overheated state,” Jefferson said.

Inflation by the Fed’s target measure, the year-over-year change in the personal consumption expenditures index, was 2.2% in August, “much closer” to the Fed’s 2% target than two years ago, when it was 6.5 percent, Jefferson said.

“I expect we will continue to make progress towards this goal.”

Meanwhile, unemployment is at 4.1 percent, up only a “limited” amount from 3.8 percent a year ago, Jefferson said. Job growth has slowed, however. “The cooling of the labor market is visible,” he said.

In language closely mirroring the Fed’s post-meeting statement issued last month, Jefferson said he would watch incoming data, the outlook and the balance of risks when considering further rate cuts.

“My approach to making monetary policy is to make decisions on a meeting-by-meeting basis,” Jefferson said. “As the economy evolves, I will continue to update my policy thinking to best promote employment and price stability.”